Trade finance: Troubled waters

The eurozone crisis and a tightening regulatory screw have intensified a mismatch between emerging trade flows and the provision of trade finance. Latin American companies and

By Oliver O’Connell

European banks have a long history in Latin America, closely
related to international trade. The 2008/09 global financial
crisis placed many of them in a strong position as US banks
backed off from trade finance lending.

But the eurozone crisis of 2011 triggered a reversal of
fortunes, with a large-scale retrenchment of trade finance
lending by European banks, which had been an essential part of
the market. Gaps emerged – and were often exacerbated
– in the provision of trade finance both direct to
corporate clients and to financial institutions.

Today, a renewed European recession, a lackluster recovery
in the US, and a slowdown in China, have compelled Latin
American companies and their national governments to explore
developing new trade and investment flows.

In 2011, Latin America’s exports grew 5.3% and
imports 10.4% – well above the world average
– but with global growth slowing there are...